Spain central bank presses EU to act quickly on Greece

Spain's faltering economy slowed in the second quarter, the Bank of Spain said in a report, identifying the sovereign debt crisis as the biggest threat to the economy.

Spanish economic growth slipped to 0.2 percent in the second quarter of 2011 from 0.3 percent in the first three months of the year, it said.

"The available information on the second quarter suggests a weakening of activity in an environment marked by the deepening eurozone sovereign debt crisis," the Bank of Spain said.

Spain is weathering a "cycle of weak recovery," it warned.

"The increase in uncertainty in past months has accentuated the downward risks on growth," the bank said.

"The possible repercussions of tensions in the sovereign debt markets on the real economy are the main source of risks.

"Overcoming this adverse climate depends on decisively and clearly implementing the commitments made in the summit of heads of state on July 21 at a European level," the bank said.

Halting the contagion would also require "energetic" national economic policy responses, it said.

The Bank of Spain's plea dovetails with the Spanish government's calls for Europe to enact the summit agreement as quickly as possible to dispel uncertainty which has helped drive massive losses on the financial markets.

The July agreement included a new, 160-billion-euro ($226 billion) package of financial aid for Greece. But almost one-third was to be funded by private sector investors, sparking a sell-off of other doubtful sovereigns.

The eurozone debt crisis has already claimed Greece, Ireland and Portugal, forcing them to seek bailouts from the European Union and International Monetary Fund.

There are growing fears that Italy and Spain, the eurozone's third- and fourth-biggest economies, could be next in line, developments that would dwarf previous bailouts and could undermine the euro itself.

Madrid argues it has pursued tough reforms including raising the retirement age, relaxing collective bargaining rules, making it easier to hire and fire employees, cutting civil servant wages, forcing banks to bolster their balance sheets and placing assets such as the national lottery on the block for sale.

The Bank of Spain report called for rapid implementation of these reforms.

According to the central bank, strong exports allowed Spain to show economic growth in the second quarter despite weak consumer spending and investment at home.

It noted in particular "weakening" industrial activity. Latest figures Friday showed industrial production plunged 2.0 percent from a year earlier in June.

The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a property bubble. It stabilized in 2010.

Spain's staggering unemployment rate -- 20.89 percent in the second quarter of 2011 -- has helped to whip up a nationwide "indignant" protest movement against the pain caused by the economic slump.

The Bank of Spain forecasts growth of 0.8 percent in 2011 and 1.5 percent in 2012 while the government is tipping a more optimistic rate of 1.3 percent in 2011 and 2.3 percent in 2012.